Will the West save jobs from the jaws of protectionism?

ByJoseph C. HarschDecember 3, 1982

In all the Western industrial nations this week the prime concern was not with anything the Soviet Union is doing or might be planning to do, but with the sorry state of their economies and their political inabilities to do those things they all know they ought to be doing.

The biggest disappointment is that the American economy, which is important to all the others because of its size, is not showing signs of the brisk recovery promised by the Reagan administration since it took office.

All those who went to the big GATT trade talks in Geneva during the previous week had known that they should take firm action to head off a wave of new trade protectionism. But the delegates to the General Agreement on Tariffs and Trade trooped home last week knowing that they do not have the political power with their own respective legislatures to thaw out existing trade barriers or prevent the erecting of more.

History is clear on the subject. Trade distortions such as subsidies, quotas, tariffs, misuse of ''sanitary regulations'' - weaken the whole world trading community. The economic breakdown of the 1930s was accentuated by a vast wave of protectionism. The highest tariff act in United States' history - known as Smoot-Hawley for its congressional sponsors - was a major factor in converting a banking crisis and stock market crash into a true and long-lasting depression.

But politics enters in. Political pressure has already forced the United States to negotiate various restraints against imports of European steel and Japanese automobiles. The Economic Community subsidizes grain exports to the injury of US and Australian grain growers. President Reagan has held out against demands for more protectionism, but if unemployment remains at present levels into next year, pressure will inevitably mount. France has virtually shut out Japanese television video recorders by funneling them through a single customs post.

The burden of unemployment is heavy in all the industrial democracies except Japan, which alone enjoys a flexible wage system. The others are carrying some 30 million persons on unemployment rolls, a third of that total in the US.

The major Western countries have brought their inflation rates down to reasonable levels, but the price has been high unemployment. Not one of them has devised a politically acceptable means for stimulating business activity and hence employment without slipping back into high inflation.

President Reagan proposed (and later backed off from) the idea of advancing the third round of his tax cuts in the hope that more tax relief for the upper income earners would stimulate the economy. The first two rounds have so far failed to do that and Congress showed little interest in hastening the third. Besides, more tax cutting would only reduce funds available for creating more jobs.

The West has long been smug about economic stagnation in the Soviet Union, but Western economies - although still far more productive - are also stagnating. In Washington the chairman of the Federal Reserve Board, Paul Volcker, admitted to a congressional committee recently that ''unambiguous evidence that the recovery is already under way is still absent.''

That is of course the reason the Fed has been easing up on the US money supply. It is also why President Reagan has been forced to agree to a federal tax, probably of 5 cents a gallon on gasoline, which will create more jobs through highway and mass transit construction. Congress will undoubtedly pass the measure and at a brisk pace. It can act quickly when visible votes might provide a few jobs.

Complicating the general Western problem is a huge load of external debt on several countries. President Reagan's first stop on his Latin American tour during the week was in Brazil, which has an external debt that now stands at $85 billion. Just the service of the debt taxes Brazilian resources. The same is true of Mexico with an $80 billion debt load. The best help Mr. Reagan could offer Brazil would be an economic recovery in the US, which would stimulate US purchases of Brazilian raw materials.

There are economists who are willing to predict US recovery during 1983, but optimism is restrained. Some think the turn in the economic tide may be later than 1983. Some think more trouble and perhaps real depression lie ahead. The main fact that disturbs everyone is that the Reagan theory of ''trickle-down'' economics is still not working.

The tax cuts of the first two Reagan years have not given a boost to the economy yet, unemployment is at a new high, more plant closings and layoffs are constantly in the news, and pre-Christmas price cutting is general and massive. The wage line has more or less held steady except in cases where workers have accepted cuts to keep a factory or mill from closing. But the very inflexibility of the wage structure in both the US and Western Europe is considered one of the reasons for the lag in recovery and the high levels of unemployment.

Meanwhile, the new regime in Moscow was settling in. There was continuing speculation about the possibility of Soviet withdrawal from Afghanistan and cutbacks in Soviet aid to Vietnam. But there was nothing firm yet on either of these two points of prime interest to China and India. The main change in the East-West story was release of some Solidarity internees in Poland and continued hints of an end to martial law by Christmas.